Hearing of the House Financial Service Committee - Transcript

HEADLINE: HEARING OF THE HOUSE FINANCIAL SERVICE COMMITTEE

SUBJECT: SEMIANNUAL MONETARY POLICY REPORT TO THE CONGRESS

CHAIRED BY: REPRESENTATIVE MICHAEL OXLEY (R-OH)

LOCATION: 2128 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: FEDERAL RESERVE BOARD CHAIRMAN ALAN GREENSPAN

BODY:
REP. OXLEY: (Gavel.) This hearing of the Committee on Financial Services will come to order. We are meeting today to receive the semi-annual testimony of the chairman of the Federal Reserve Board of Governors. Pursuant to the chair's prior announcement and Rule 3F(2) of the rules of the committee, the chair will recognize the chairs and ranking members of the full committee and the subcommittee on domestic and international monetary policy, technology and trade, or their respective designees, for opening statements. The statements of all other members may be placed in the record.

The chair now recognizes himself for five minutes.

Good morning, Mr. Chairman, and welcome back to the committee. All of us on the Financial Service Committee look forward to our discussions with you on U.S. economic performance, which so directly affects the lives and livelihoods of all Americans.

At this unique economic moment of war and renewal, there are many who deserve credit for the recovering economy. First and foremost are the American people-the American investor, who didn't panic and never lost faith, and the American consumer who believes that the economy will continue to improve.

Our American companies have retooled in accordance with the Sarbanes-Oxley Act, thus improving financial reporting and bolstering confidence. Our markets continue to be the most productive capital- creation organizations in the world. Despite predictions that companies would delist, they have not done so. In fact, companies continue to seek new listings in our deep and vibrant U.S. markets.

Mr. Chairman, the economy is recovering nicely from the mild recession of 2001. The market is back to pre-recession levels. Fixed investment is up. Unemployment is down from its peak. Exports are up. The balance of payments is down. And none of the Blue Chip 50 forecaster predict growth rates of less than 3 -- than mid-3 percent rate over inflation higher than the mid-2 percent ranges for this year or next. Most of the Blue Chip forecasts are much more optimistic.

Two items that have everyone's attention are the employment figures and the deficit numbers. There is understandable concern about both. I'm sure we would all prefer budget surpluses and would like every American who seeks a job to have one right now. However, I believe these are temporary problems attributable to temporary conditions.

Despite some alarmist commentary, the deficit numbers for this year are understandable given the terror attack, a recession, corporate governance problems and war. While they are higher than we would like, even after all of these events, the deficit is till at about 3.5 percent of GDP. According to the president's budget, the deficit will be half that level in five years. The alternative would be to stop investing in economic stimulus or to fight against terror on the cheap, and I don't think the American people would want either of these options.

Mr. Chairman, I know you favor pay-as-you-go budgeting.

However, the president's tax cuts have helped to sustain the U.S. economy, especially in the face of recent shocks. In addition to the headline grabbers of terrorism, war and corporate scandal, we faced a European currency unit that sank in value by a third, which damaged the value of our exports.

Regarding employment levels, Mr. Chairman, I hope that you will be able to add some perspective to the national debate. When I studied economics and until just a few years ago, the accepted theory was that roughly 6 percent was considered full employment. This is about where we are now. During the bubble economy of the late 1990s, that rate went down in the 4 percent range and briefly hovered near 3.9 percent. To many of us, it seemed as if one of the laws of economics had been repealed. Then, with the recession, unemployment increased again over 6 percent, though I should quickly add that we have been seeing steady job creation since last July.

Mr. Chairman, I think most of us on both sides of the aisle believe the American economy will create additional jobs and their quality will improve as the economy continues to adapt to changing times. We would welcome your thoughts on job creation and what we in Congress might do to help.

With that, Mr. Chairman, I will look forward to your appearance here again, which is always a great occasion for this committee. We thank you for your stewardship of the economy.

And I now yield to the gentleman from Massachusetts, Mr. Frank, for his opening statement.

-BREAK IN TRANSCRIPT-

REP. OXLEY: The gentleman's time has expired.

The gentlelady from California, Ms. Waters.

REP. MAXINE WATERS (D-CA): Thank you very much, Mr. Chairman.

Mr. Greenspan, we welcome you. We're always delighted to have you here. And I bring you greetings from my district. My constituents still have fond memories of your visit there, and we welcome you back. But they told me to ask --

MR. GREENSPAN: I remember it fondly as well, I must say to you.

REP. WATERS: Thank you. But they did tell me to talk with you about jobs today. You're going to hear, particularly on this side of the aisle, many questions about jobs, job creation and outsourcing. As we welcome you here, we seek your wise counsel and advice about how we as public policymakers can reconcile the dilemma that you describe in your statement as "the economy having made impressive gains in output and real incomes, and only limited progress in creating jobs."

Mr. Chairman, as you know, having a job is like motherhood and apple pie in America. And when we look at what is happening to jobs, I see in my own state job loss numbers from the Bureau of Labor Statistics that show that my state of California has lost 284,900 non- farm payroll jobs since January 2001, including 8,400 such jobs in December. As of December 2003, there were 1,125,890 persons in California who were unemployed -- 329,875 more than in January 2001. There are a lot of other numbers I could give you. But I want you to know, as we look at this national job picture, the job picture is even worse for minorities. The national African-American unemployment rate is 10.5 percent and the Hispanic employment rate is now 7.3 percent.

Now to add insult to injury, Mr. Chairman, we have this outsourcing. We started to talk about this 15, almost 20 years ago. When I was in the state legislature, one of my biggest pieces of legislation had to do with plant closure. And we warned that the loss of manufacturing jobs and the exportation of jobs to Third World countries was going to create this kind of job picture. And we were told by economists, don't worry, there will be different kinds of jobs. And yet that has not happened.

Mr. Chairman, what advice do you give us? Do you believe that this administration can make the Bush tax cuts permanent, continue to spend and create this huge deficit, not unveil to the American public what the war in Iraq and Iran is costing us-it wasn't shown in the budget-and somehow create jobs and turn this picture around? What is your advice? And do you believe that when we look at the president's expenditures and this huge deficit that we can have new spending, such as the space program that he described in the budget-the creating of the space station on the moon and going to Mars?

And Mr. Chairman, what is this business about training-for what jobs? -- in the community colleges? And shouldn't we be attaching to the tax cuts and evaluating whether or not that money is seeing its way back into the economy and doing job creation? How can we solve this dilemma? What advice would you give this administration and us?

MR. GREENSPAN: Well, first of all, the major problem with jobs is not economic growth, it's not demand, it's not structure of elements which were involved in taxes or anything which impacts on the gross domestic product. If that were the case and we were in a period of historically low productivity growth, our job creation numbers would be huge at this point.

So what's involved here is this very difficult problem that we have got, which-on the one hand, we obviously look with great favor on the efficiencies that are occurring, because at the end of the day that will elevate standards of living of the American people. On the other hand, it's very clearly creating a significant shortfall in new hires.

Now unless I am mistaken, my view is that we are about-this pattern is about to change. I don't know when it's going to change. I just find it highly difficult to imagine that we can continue to advance efficiencies as quickly as we are doing. But I will say this: that it's only a slowdown in productivity or an incredible and unexpected rise in economic growth from an already high level that will create jobs. And I don't think that the question really, at this point, is involved in the budget or fiscal policy, although, for reasons I try to outline in my prepared remarks, it's a very critical issue down the road, so to speak. It's --

REP. OXLEY: The gentlelady's time has expired.